(The Toronto Star posted the following column by David Olive on its website on April 4.)
TORONTO — Paul Tellier has a twin-track plan for reviving Bombardier Inc., Canada’s flagship exporter.
The first track is a series of public relations initiatives.
The second is prayer.
Within a month of his celebrated arrival last December as Bombardier’s saviour CEO, Tellier dipped into the company’s depleted treasury to pay for a string of advertisements in major newspapers touting Bombardier’s export prowess, R&D commitment to Canada and impressive record of creating jobs for Canadians.
Tellier followed that up by showing off such promising new products as Bombardier’s 240-kph JetTrain, with high hopes for selling the concept across North America, starting with VIA Rail Canada’s Windsor-Quebec City corridor.
Tellier had some more ear candy yesterday for investors. The troubled firm has now resolved to straighten up and fly right.
To boost liquidity, Bombardier will raise up to $2.3 billion by issuing new stock and dumping such assets as its founding Ski-Doo business, a defence services division and the Belfast City Airport. Here’s the cherry on top. Bombardier will swear off its convoluted bookkeeping of the past, a point Tellier nailed yesterday by declaring $2.2 billion in write-downs a confession that prior years’ stated profits were a fiction.
“Tighter accountability and financial discipline are being applied across the corporation,” Tellier told analysts yesterday. “Bombardier today is focused on value creation.”
The buzzwords fail to address some bitter realities.
With Bombardier’s core aerospace market in a severe downturn, there’s no assurance it can raise anything like its planned $800 million from share sales.
It would mean a massive dilution to existing investors.
Don’t expect rapid progress on the asset sales. The Belfast airport, for example, has been on the auction block for six months. Or a quick resolution to other nagging problems, such as Bombardier’s drawn-out legal squabble with DaimlerChrysler AG over the disputed value of German railcar maker Adtranz, acquired in 2001.
Tellier has noisily addressed Bombardier’s corporate governance problems, which no one seemed to care about before the world aerospace industry went into a tailspin.
With great fanfare, Tellier has sacked the chief financial officer he inherited, appointed a former federal auditor-general to the board and put independent, or outside, directors in charge of each board committee.
Welcome changes, perhaps, but of no impact in getting bankrupt Air Canada and United Airlines to resume their purchases of Bombardier’s commuter jets.
Tellier has yet to make the tough decisions. Having acknowledged that the mismanaged Bombardier Capital is a “black box” of murky accounting practices and dubious investments (in mobile homes, among other things), will he get rid of this once-useful tool in financing customer purchases?
There was no word yesterday, either, on the necessary triage operation Tellier must undertake in the all-important aircraft division.
After launching 14 new aircraft types in the past dozen years or so, Bombardier faces painful decisions about maintaining production of its full range of commuter and corporate planes, and keeping the faith with the slow-selling turboprops and water bombers assembled at its de Havilland facility in Toronto.
Another problem that will resist a quick fix is Adtranz, the acquisition of which made Bombardier the world leader in rail equipment.
Trouble is, many of Adtranz’s 32 manufacturing sites are in Europe, land of high labour costs and inflexible work rules. It will be tough to consolidate those plants because many of them exist as a quid-pro-quo for obtaining contracts from state-owned transit and commuter authorities.
This is where prayer comes in, particularly in Bombardier’s all-important aerospace division, which in a good year accounts for more than 80 per cent of total profits. The trifecta of a weak global economy, terrorist alarms and the Iraq war, plus the SARS outbreak, have brought the aviation industry to its knees.
With air traffic declines in the double digits this year and last, the airline industry is more troubled than at any time in its history, with worldwide losses of nearly $30 billion (U.S.) since the tragic events of Sept. 11, 2001. Most analysts don’t see an upturn until 2004.
In the meantime, Bombardier, which sold its commuter jets to scores of airlines on every continent in the 1990s, will simply have to wait it out, hoping that a prolonged war doesn’t put still more carriers, such as rumoured bankruptcy candidate American Airlines, into limbo.
On the rail side, there’s not much Bombardier can do about a weak economy in Europe, where the company derives many of its sales for trams, streetcars and subway cars. With more than half of all U.S. states facing budget crises, there’s not much prospect of a quick recovery in orders from transit authorities south of the border.
The centrepiece of Tellier’s “action plan” unveiled yesterday is the planned sale of Bombardier’s original business, a mini-conglomerate in its own right that makes Ski-Doos, Sea-Doos, golf carts, speedboats and Evinrude and Johnson outboard motors.
That the family of the late founder J. Armand Bombardier, which still controls Bombardier, would let the company part with this 61-year-old business was meant to convey the firm’s commitment to gut-wrenching change.
Given its history of outperforming the larger rail division in profitability from time to time in the 1990s, there should be no lack of buyers for this operation.
The Bombardier family itself has shown an interest in retaining a stake in the business, determined, perhaps, to avoid the remorse Charles Bronfman suffered after failing to buy Seagram Ltd.’s original liquor business when that firm ruinously transformed itself into an entertainment company.
But the recreational products division is small potatoes, accounting for a modest portion of Bombardier’s $23.7 billion in revenues.
In recent years, several companies with grandiose plans to reinvent themselves have highlighted a dramatic sale of an original or venerable business. Sears, Roebuck & Co. dumped its catalogue operation. Corning Inc. shed its Pyrex cookware. Hewlett-Packard Co. spun off its founding precision-instrument business. Hudson’s Bay Co. sold its string of trading posts in the Far North.
Not one of those companies is better for having cut its ties to the past.
“Rigour and consolidation are the order of the day,” Tellier vowed
yesterday.
He could have been more candid. He could have mentioned prayer. No one would be embarrassed.